Last June, San Diego assemblyman Juan Vargas received a brief, if dubious, burst of fame for his role in the failure of Senate Bill 1, a financial privacy measure sponsored by Democratic senate member Jackie Speier. The San Francisco Chronicle discovered that nine assemblymen who had either voted against the bill or abstained from voting in committee had collected a total of $667,000 in campaign funds from banking and insurance interests opposed to the bill. The measure would have allowed consumers to protect the privacy of such personal information as spending habits, bank balances, loan amounts, and payment histories from banks and other financial service companies.
"One of the five nonvoters, Juan Vargas, a San Diego Democrat who took in $135,000 in such donations, refused to be interviewed for Monday's news story about the role of money in stopping a measure that enjoys overwhelming public support," the newspaper reported.
"Vargas suggested the Chronicle has 'stepped over the line on this issue.'"
After a watered-down version of the privacy law was finally passed in late August, the San Jose Mercury News editorialized that "SB 1 passed only after lobbyists for the financial services industry allowed it to pass. It wasn't until they gave the go-ahead that scores of lawmakers found the 'courage' to vote for a bill that had the support of nine in 10 California voters. On Monday, just four days after the financial lobby withdrew its opposition, Vargas was part of the 76-1 majority that rushed SB 1 through. To be sure, the threat of a popular ballot initiative played a role in the about-face by lawmakers -- but only after the lobbyists let them off the leash." In fact, the Mercury News also reported, Vargas had not even bothered to show up for the earlier 10-0 vote in the assembly banking and finance committee to pass the bill to the floor. That wasn't the only controversy involving the 79th District assemblyman and his campaign fundraising activities last year. As chairman of the assembly insurance committee, Vargas is a key player in the long-running fight over workers' compensation insurance reform, as well as other manner of insurance regulation, from homeowners to car insurance.
In July, Vargas and other insurance committee members came under scrutiny during a battle over a controversial car-insurance bill favored by Los Angeles-based Mercury General Corp. The measure allowed car insurers to levy a surcharge on the auto policies of customers whose policies had previously expired. Consumer groups maintained that the bill would discriminate against poorer drivers, discouraging many from getting car insurance at all. Mercury maintained the measure would lower costs for more faithful policy owners.
The bill was opposed by Consumers Union and the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which argued that the measure by Democratic senator Don Perata would result in a 38 percent jump in premiums for low-income drivers who might have only briefly allowed their insurance to lapse. The bill's chief supporter was Mercury, and during the insurance committee hearing, consumer lobbyist Doug Heller held up a fake $10,000 bill during his testimony to illustrate, he said, the almost $2 million in campaign contributions that Mercury had given to 12 of the 19 committee members since 2000, including Vargas.
That drew a stern admonition from the committee chairman. "Obviously you're playing to the media here," Vargas said. "This is not a circus. This is a committee room." Heller later told reporters that the "real circuses are the endless circus of fundraisers that get us to the point where the contributions of one insurance company are more important than the voices of consumers, low-income representatives, and the insurance commissioner." Vargas voted with the 14-3 committee majority to send the bill to the floor. It was signed into law last August by then-governor Gray Davis but ruled illegal last month by a Los Angeles Superior Court judge, who held that it violated Prop 103's prohibition of discrimination against uninsured motorists trying to buy insurance. The state said it would probably appeal the ruling.
In a phone interview last week, Heller, who works for the Foundation for Taxpayer and Consumer Rights, said he could find no ready explanation for Vargas's vehemence in pushing the bill, other than the considerable influence of Mercury's hefty campaign contributions. "I was surprised, yes. It seemed unusual," he said, adding that the sizable contributions from so many insurance interests to members of the committee "raise a whole series of very serious legal and ethical questions" for the legislators who accepted the money. And he pointed to new allegations of possible conflict-of-interest involving Mercury revealed last week by the San Francisco Chronicle.
That story involves a large contribution Mercury made last spring to an Oakland-based political committee with links to Democratic state senator Don Perata, the author of Senate Bill 841, the companion to the assembly version of the Mercury-favored bill approved by Vargas and his assembly insurance committee in July. The political committee Community Leaders for Neighborhood Preservation, run by consultant Timothy Staples, a friend of Perata's, collected $135,000; $75,000 of that came from Mercury.
The committee in turn paid Staples $61,740. During the same period, the Chronicle discovered, Staples had paid Perata $100,000 in consulting fees. The pair denied there was any connection between funds paid to Staples by the political committee and the money Staples paid to Perata for "business consulting." But by last Friday, Perata had announced he was ending his business relationship with Staples. "No one is going to be put in this position ever again because it's too embarrassing for too many people," he told the Chronicle on Friday. Heller's group has called for a Senate ethics investigation. Mercury declined comment.
Through all the controversy, Vargas has continually hit up industry lobbyists for campaign cash, although he runs virtually unopposed in a safe Democratic district. State disclosure records show Vargas has transferred much of the money he has raised to the campaigns of fellow assembly Democrats; he has also used campaign fundraising proceeds to pay for donations to charities he favors and to make payments to longtime aides and associates.